Makati Stock Exchange

The Makati Stock Exchange (MkSE) was one of the two main stock exchanges in the Philippines, operating from 1963 until its historic unification with its older rival, the Manila Stock Exchange, in 1992. Situated in Makati, the nation's primary financial district, the MkSE was seen as the modern, more aggressive upstart compared to the established Manila exchange. For nearly three decades, these two exchanges competed head-to-head, often listing the exact same companies' securities. This peculiar setup created a fascinating and often chaotic market where a single stock could trade at two different prices on two different trading floors just a few kilometers apart. The story of the MkSE is more than a historical footnote; it's a compelling tale of rivalry, market evolution, and the drive for efficiency that forged the modern Philippine Stock Exchange.

Imagine the drama: for 29 years, the Philippine stock market was a house divided. The Manila Stock Exchange (MSE), founded in 1927, was the old guard. The Makati Stock Exchange, established in 1963 by a group of business executives, was the challenger. This wasn't just friendly competition; it was a full-blown rivalry. The most peculiar feature of this era was that a company like San Miguel Corporation would be listed on both exchanges. However, due to separate sets of brokers, trading systems, and sentiment, the price on the MkSE could differ from the price on the MSE at the very same moment. This created a classic scenario for a practice known as arbitrage. A savvy trader could theoretically buy a stock on the exchange where it was cheaper and simultaneously sell it on the exchange where it was more expensive, pocketing the difference as a near risk-free profit. This duplication created significant market inefficiency, confusing investors and fragmenting the country's overall market liquidity.

By the early 1990s, the consensus was clear: the two-exchange system was holding the country back. It was inefficient, deterred foreign investment, and created an unnecessary layer of complexity. To create a stronger, more credible, and globally competitive market, the two rivals agreed to put their differences aside. On December 23, 1992, the Makati Stock Exchange and the Manila Stock Exchange were officially merged to form the single national bourse we know today: the Philippine Stock Exchange (PSE). The unification was a landmark event, creating a single, more liquid, and more transparent marketplace for investors. Initially, the PSE cleverly maintained two separate trading floors—the old MkSE floor in Makati and the old MSE floor in Pasig City—as a symbolic gesture to the unified legacy before eventually consolidating into a single location.

While the era of the Makati Stock Exchange is over, its story offers timeless wisdom for the modern value investing practitioner:

• Markets Aren't Always Efficient: The MkSE-MSE rivalry is a perfect textbook example of market inefficiency. While the glaring arbitrage opportunities of that time are rare in today's high-speed, interconnected markets, the underlying principle holds true. Prices can and do disconnect from intrinsic value due to fear, greed, or structural quirks. A value investor's job is to hunt for these disconnects.
• Understand the “Plumbing”: This history underscores the importance of understanding the structure of the market you operate in. A unified, well-regulated, and liquid market like the modern PSE is far healthier for a long-term investor than a fragmented one. The “plumbing”—the rules, the trading systems, the regulatory bodies—matters immensely as it forms the foundation upon which all investment activity is built.
• History Provides Context: Knowing how a market evolved from a chaotic, two-exchange system to a unified entity helps you appreciate the stability and safeguards in place today. For a value investor, who takes a long-term view, this historical context is not just trivia; it's a crucial part of understanding the landscape in which you are deploying capital.